Property tax in Arizona is a primary revenue source for local governments, school districts, community colleges, and various other public services and capital projects for the state. In the 2015 tax year, tax districts in Arizona combined to impose a total of roughly $7 billion in property taxes across the state. School districts were the biggest recipient of funds, accounting for 49.2% of the total. County governments accounted for a 19.2% share, followed by community colleges with 11.9% and municipal governments with 8.1%. Special tax districts collected funds for fire departments, health services, libraries, parks, water conservation programs, road improvement projects, flood control and various other voter-approved purposes.

Types of Property Tax in Arizona

Arizona has two types of property tax: primary property tax and secondary property tax. Primary taxes provide funds for the ongoing operation of school districts, counties, municipalities and community colleges. Secondary taxes provide operational funds for all other special tax districts, for debt retirement associated with infrastructure investments and other capital projects, and for school budget overrides. A budget override is a voter-approved method of providing additional funding for a school district or community college beyond the funds it receives from primary taxes.

Property Valuation in Arizona

Prior to 2015, Arizona operated a dual valuation system for the calculation of property taxes. In that system, secondary property tax assessments were based on the full cash value (FCV) of a property as determined by the real estate market. Primary property tax assessments, on the other hand, were based on a value known as the limited property value (LPV). The LPV was limited by law in the amount it could increase each year. Consequently, a property's FCV could grow faster than its LPV over time. Newly built properties were assigned LPVs to match the difference between the LPVs and FCVs of similar existing properties in the same county, ensuring consistency in the valuations of new and old properties.

In 2012, voters approved a set of property tax reforms that simultaneously ended the use of full cash value for tax assessment, and reduced the annual growth limit for LPVs to a flat rate of 5%. In the new system, which was implemented in 2015, both primary and secondary tax assessments are based on a property's LPV. A property's LPV is subject to an automatic 5% annual increase, with the caveat that the LPV may never exceed the current FCV of the property.

Once the LPV is calculated, the tax assessor then applies the required assessment ratio to calculate the property's assessed value. The assessment ratio is based on property classification. Primary and non-primary residential properties, as well as residential rental properties, have an assessment ratio of 10%. Thus, the assessed value of a residential property may not exceed 10% of its full cash value and may be less, depending on it LPV. To illustrate, a home with a full cash value of $225,000 and an LPV of $200,000 would have an assessed value of $20,000.

Average Property Tax in Arizona

In 2015, the statewide average property tax rate in Arizona was $12.77 per $100 of assessed value. The average primary tax rate was $8.74 per $100, while the average secondary tax rate was $4.03 per $100. County-level averages vary widely. At the low end, combined property taxes in Greenlee County averaged $3.94 per $100 of assessed value. Pinal County, on the high end, had an average property tax burden of $16.05 per $100 of assessed value. Note that property owners in a county may pay different tax rates, depending on how many special tax districts the property lies within.

Arizona Property Taxes Compared to Neighboring States

In an effort to cut through the differences between state systems, the Tax Foundation, a nonprofit organization, recently conducted a study focused narrowly on average effective tax rates for owner-occupied housing in all 50 states and Washington D.C. While imperfect, the study does provide a good snapshot of what kind of property tax burden the average homeowner faces in each state, as a percentage of a home's real market value. According to the figures, the average tax rate for homeowners in Arizona is a tick higher on average than the burdens in most neighboring states. Arizona has an effective average rate of 0.8%, while New Mexico is at 0.73%, Utah is at 0.68%, and Colorado is at 0.61%. Arizona is in line with neighboring California at 0.81% and slightly below Nevada at 0.86%. Arizona has the 16th-lowest rate in the country. The Tax Foundation does not calculate a nationwide average. Given the often vast differences between property tax systems in different states, straightforward comparisons across state lines are difficult.